The Dead Stock Strategy: When to Liquidate Inventory for a Tax Write-Off

In the high-velocity world of TikTok Shop and Amazon FBA, inventory is your lifeblood—until it becomes a liability. Every e-commerce founder eventually hits the same wall: a product that looked like a "hero" item on paper but is now gathering dust and racking up storage fees in a 3PL or fulfillment centre.

As an e-commerce accountant in the UK, I see this daily. Sellers are often paralised by the "sunk cost fallacy," terrified of losing money by selling at a discount. In reality, sitting on dead stock costs you twice: once in long-term storage fees and again in tied-up cash flow.

Worse yet, by holding onto it at full valuation, you are missing a critical opportunity to use that loss to slash your Corporation Tax bill. Here is how to handle dead stock like a pro in 2026.

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What is Dead Stock and Why Does it Matter?

Dead stock refers to inventory that is unlikely to sell at its original price, or at all. This includes seasonal misses, returned goods that aren't "Grade A," or products that failed the TikTok algorithm test.

For UK sellers, dead stock is more than a space issue; it’s an accounting requirement. Under UK GAAP (FRS 102), stock must be valued at the lower of cost or Net Realisable Value (NRV).

• The Rule: If your stock is worth less than what you paid for it (minus selling costs), your accounts must reflect that lower value.
• The Benefit: Failing to adjust this means you are overstating your assets and paying tax on "phantom profits."

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Identifying the Tipping Point: When to Fold

If you spent £10,000 on stock and sell it for £2,000, it feels like a £8,000 failure. But as an accountant, I see an opportunity cost. That £2,000, if extracted today, can be pivoted into a high-margin SKU that turns over in 30 days.

The 6-Month Rule: In 2026, if an SKU hasn’t moved in six months despite price optimisations or influencer seeding, it is dead stock. At this point, the surcharges for long-term storage—especially on Amazon—will quickly eat any remaining recovery value.

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‍How to Record a Tax Write-Off in the UK

A "write-off" doesn't mean your inventory simply vanishes into thin air. It is a strategic accounting move to recognise a loss, which reduces your taxable profit.

1. The Physical Audit: Conduct a digital audit via Xero, Sage, or your inventory tool.
2. Determine NRV: If a product is unsellable or damaged, write the value down to £0. If it’s only sellable at a 70% discount, that is your new valuation.
3. Adjust the P&L: Your accountant will adjust your "Closing Stock" figure.
4. Tax Logic: Lowering your closing stock value increases your Cost of Goods Sold (COGS). Because \text{Profit} = \text{Revenue} - \text{COGS}, a higher COGS results in a lower net profit and a smaller Corporation Tax bill.

Pro Tip: Ensure you keep evidence of the "Net Realisable Value"—such as screenshots of clearance pricing or liquidator quotes—to satisfy HMRC during an audit.

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Integration Challenges for Creators and Affiliates

If you are a creator transitioning into physical products, you’ve likely noticed that software integrations are still fragmented. Juggling TikTok Shop payouts, Shopify analytics, and affiliate samples often leads to data silos.

This fragmentation is dangerous. You might still have 500 units on your balance sheet that were actually given away as samples or lost in transit. At Social Commerce Accountants, we reconcile these settlements manually to ensure you aren't paying tax on stock you no longer actually own.

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Strategic Liquidation: Making the Best of a Bad Situation

You have three primary routes to clear the decks:

• Fire Sales: Deep discounting on your own site. Good for cash, but be careful not to devalue your brand long-term.
• Bundling: Pair dead stock with a bestseller. This clears the shelf while increasing your Average Order Value (AOV).
• Inventory Liquidators: Selling the bulk lot to a third party. It’s a "pennies on the pound" move, but it provides an immediate cash injection and an instant tax deduction.

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Summary: The Bottom Line

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About the Author: Sam Hoye Sam Hoye is the founder of Social Commerce Accountants, the UK’s leading firm for digital entrepreneurs. Specialising in the "messy middle" of e-commerce—where platform fees, VAT, and inventory management collide—Sam helps seven-figure TikTok and Amazon sellers scale through blunt, actionable financial advice.

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